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Hello, forex friends!

If you missed the latest FOMC statement, or if you just want a quick rundown on the key points, here are 5 takeaways from the June FOMC statement that you need to know about.

1. Vote to keep rates steady was unanimous

Kansas City Fed President Esther L. George has been the most hawkish voting member of the lot, so much so that she was the only one who voted for a 25 bps rate hike during the March and April FOMC meetings. Well, it turns out that she’s a hawk no more, since she voted to keep rates steady, as you can see below.

April Voting Record
April Voting Record
June Voting Record
June Voting Record

2. GDP growth projections downgraded

GDP Projections

As you can see above, Fed officials downgraded their GDP growth projections for 2016 and 2017, with 2016 GDP now expected to grow by 2.0% (2.2% originally) while 2016 GDP is expected to also grow by 2.0% (2.1% previous).

In her opening remarks at the FOMC presser, Fed Head Yellen implied that the downgrades to GDP growth were due to sluggish business investment, as well as expectations that several headwinds will persist, namely “developments abroad, subdued household formation, and meager productivity growth.”

When Yellen was asked to clarify these “developments abroad” during the Q&A portion of the press conference, she singled out the Brexit referendum, saying that:

“Clearly this is a very important decision for the United Kingdom and for Europe. It is a decision that could have consequences for economic and financial conditions in global financial markets. If it does so it could have consequences in turn for the U.S. economic outlook that would be a factor in deciding on the appropriate path of policy. It is certainly one of the uncertainties that we discussed and that factored into today’s decision.”

On a more upbeat note, Yellen said that “Indicators for the second quarter have so far pointed to a sizable rebound,” which is what I also concluded in my Snapshot of the U.S. economy.

3. Higher inflation expectations

Inflation Projections

Fed officials weren’t too upbeat on growth prospects, but they were optimistic on inflation since they upgraded the projected headline reading for 2016 from 1.2% to 1.4%, but projections for 2017 and 2018 were maintained. As for the core reading, they upgraded their projection for 2016 from 1.6% to 1.7% and they upgraded their 2017 forecast from 1.8% to 1.9%.

As noted in the press statement and Yellen’s opening remarks, the upgraded projections were due to the fading away of “transitory effects of past declines in energy and import prices,” as well as expectations that the labor market will strengthen further.

4. On the labor market

In the Fed’s official release, it was stated that “the pace of improvement in the labor market has slowed.” Yellen was asked to expound on this during the presser, and she had this to say:

“More recently the pace of improvement in the labor market appears to have slowed markedly. Job gains in April and May are estimated to have averaged only about 80,000 per month… While the recent labor market data have on balance been disappointing, it’s important not to overreact to one or two monthly readings. The committee continues to expect that the labor market will strengthen further over the next few years. That said, we will be watching the job market carefully.”

She basically admitted that the recent NFP reports, especially the May NFP report, looked pretty bad, but she tried to play it off by implying that it was just an outlier and that the labor market will continue to strengthen. She therefore essentially repeated what she said during her June 6 speech.

5. Even slower path to tightening

Path to Tightening

Four FOMC meetings down and four more FOMC meetings to go, and the Fed has yet to hike rates. Still, the Fed is saying that we can expect one to two 25 bps rate hikes within the year since the median path for the policy rate in 2016 is unchanged at 0.9%.

However, Fed officials downgraded their rate hike projections for 2017 from 1.9% to 1.6%, which implies only four or five 25 bps rate hikes with the current 0.50% rate as the starting point, down from five or six rate hikes.

Rate hike projections for 2018 were likewise downgraded from 3.0% to 2.4%, which suggests seven to eight rate hikes, with the current 0.50% rate again as the starting point, down from ten rate hikes.

The dot plot that the Fed provided is even more revealing since it showed that six FOMC members now think that the policy rate should only be raised to 0.625%, which means they would agree to only one rate hike at most. This is up from only one member previously, as you can see on the dot plots below. Also, somebody seems to be really dovish since he/she projected that the policy rate should only be raised to 0.625% and then hold steady there until 2018.

March Dot Plot
March Dot Plot
June Dot Plot
June Dot Plot

Given all that, are you still expecting a rate hike? If you are, how many rate hikes do you think the Fed will deliver? Or maybe you just feel vindicated because you have been saying that the December rate was just a means to boost the Fed’s credibility and was therefore likely a mistake or a “policy error” as some economists would call it.

Bonus: Spot the Difference!

As usual, you don’t actually have to do that since I already did that for you, but here it is, just in case you want to see the actual press statement with the differences highlighted. Do note that words or phrases in red are additions introduced in the June statement while those which have a strike-through are from the previous release.

Information received since the Federal Open Market Committee met in March April indicates that (labor market conditions have improved further even as) the pace of improvement in the labor market has slowed while growth in economic activity appears to have slowed picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has moderated strengthened, although households’ real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further continued to improve and the drag from net exports appears to have lessened but business fixed investment and net exports have has been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling in prices of non-energy imports. Market-based measures of inflation compensation remain low declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well underway. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action was: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.